NextDC, the largest publicly listed Australian data center operator, fell 44% on Wednesday after cutting its earnings guidance and deferring projects tied to its flagship M3 facility in Melbourne. Power access was the culprit: residents pushed back on replacing wooden poles with 72ft-tall concrete pylons, delaying the facility's power upgrade and highlighting just how fragile data center expansion can be. The firm lowered its full-year earnings forecast by more than a third and reduced its revenue outlook.
"With M3 revenue deferred, we have paused projects not backed by customer contracts and put that capital behind the capacity behind our customers that have already contracted," Chief Executive Officer Craig Scroggie said according to the Financial Times. The company reported 8.7 billion Australian dollars ($6.1 billion) of liquidity at the end of last month.
RBC Capital Markets analyst Tom Beadle called the delay an "incrementally negative development." In a note, he wrote that community concerns "present a real risk to the timing of delivery of contracted capacity for data centre owners." He still rates the stock as an outperform.
But the tide has turned against the industry. Victoria's Premier Ben Carroll has banned data centers near schools, childcare centers, and homes. Meanwhile, Firmus, a data center firm backed by NVIDIA Corporation (NVDA), canceled a $30 billion IPO earlier this month.
The Case Against the Infrastructure
The selloff supports Jim Chanos's argument. "You should own the companies that build the models, not the companies that build the data centers," the short seller said, according to Business Insider. "The former are technology companies, the latter are REITs."
AI chips last only a few years, so operators are stuck paying for repeated upgrades to power and cooling, according to an Asia Times analysis.
In the U.S., two REITs face such risks, each in its own way. Digital Realty Trust Inc. (DLR) focuses on scale, primarily serving wholesale hyperscale customers such as Amazon.com Inc. (AMZN) and Microsoft Corp. (MSFT). Because it operates massive facilities, it faces external bottlenecks when scaling to meet demand.
Meanwhile, Equinix Inc. (EQIX) focuses on a dense ecosystem of interconnected customers, serving thousands of businesses rather than relying on a few large hyperscalers. However, short seller Hindenburg Research previously accused the company of overselling its power capacity by as much as 175%, raising concerns about potential infrastructure strain.
For now, the U.S. picture is less severe than in Australia. According to Tom's Hardware, SemiAnalysis found that more than 300 local moratoriums have held up only about 2.3 gigawatts of capacity, against 38 gigawatts expected to come online in 2027.
"We think moratoriums COULD delay the buildout, but they just aren't yet at scale," the firm said.
The bigger danger is to future projects in the pipeline. Texas Governor Greg Abbott told the Texas Commission on Environmental Quality to issue no permits for data center projects. Law firm Bracewell expects that pause to last until the Electric Reliability Council finishes its review in mid-December, while New York has also imposed a pause through executive action.
